March 27, 2006 at 3:21 PM #6436
I have a question regarding Prop. 13. I know taxes are capped at 1% of the sale price of a home and can only go up 2% a year after that. I also know that property can be reassessed in the event of falling home values.
The question is, if home values decline by 30% or 40% as some have suggested, how will new property values be calculated for taxes. Given the fiscal situation of the state and counties, how quick and accurate will these reassessments be?
Is their a formula for establishing property taxes in a falling market?March 27, 2006 at 5:39 PM #23822BugsParticipant
In California there is no automatic review/reduction process. Each case has to be appealed separately. That makes sense for the Assessor because it becomes a case of “unless otherwise directed”, where they’ll continue to collect the taxes until it’s decided otherwise.
What usually happens is the property owner files for the appeal and presents the appraisal or in some cases just the raw data to show that their property is currently overassessed. If the Assessor agrees or otherwise decides not to contest it they just go ahead and reassess the property based on the lower value. If the Assessor decides to fight it they get their valuation together and take it to a hearing.
The reduction in taxation isn’t permanent because the purchase price will always serve as the basis where the Prop. 13 limitations apply. So if a property loses 30% in value relative to its most recent purchase price the lower taxes will only apply for as long as the “loss” continues, and it is subject to annual adjustment up to where the adjustments to the prior purchase price take off – THEN the Prop. 13 limitations apply.
At any rate, since there is some time and effort involved in the appeal process, I wouldn’t anticipate that most homeowners would spend the money necessary to reduce their annual RE taxes until their potential savings get to be at least $1,000/year. Of course, during the last cycle when average home prices were 1/3 of what they are now and the overassessments were only measured in the $100s of dollars rather than the $1,000s of dollars there wasn’t too much appealing going on. Now with annual RE taxes for recent purchases starting at $5,000/year and up, it would only take a 15% hit in market values to make it worth these taxpayers while to appeal.
As an example, an $800,000 purchase of a new tract home in Carlsbad in 2004 would result in annual taxes of about $8,900/year. A 15% reduction in market value relative to that purchase price would justify a $1,335 reduction in taxes for however long it took for the market value to return to the $800k mark, at which point the Prop 13 limitations would hold the annual adjustments down to the 2%. If the market value went up 15% since then it would take a 30% loss (from today’s value) before that property owner had enough of a loss to make it worth their while to appeal.March 27, 2006 at 8:39 PM #23824
Thanks for the thorough explination Bugs! So it’s up to the owner to start the process. Will there be a new marketing strategy by appraisers who can “lower your taxes” ;)?March 27, 2006 at 8:55 PM #23825BugsParticipant
Oohhh yeah, you’ll be getting weekly mass mailings from appraisers – and non-appraisers, too – to solicit tax appeal work. The thing is, with automated valuation models like Zillow.Com the opportunity is there for a savvy homeowner to pull their own data to support their appeal, thereby skipping the appraisers and the real estate brokers altogether. It’ll be interesting to see how many people will take the initiative to take advantage of the availability of information.March 27, 2006 at 10:07 PM #23827
Given the fiscal troubles of San Diego and California in general, how much will the Assessor’s Office fight back. I mean, revenue for the county would drop-off substantially in a major housing correction (Tens of millions? Hundreds of millions?).March 28, 2006 at 10:02 AM #23832John FParticipant
We bought a condo in Sabre Springs in Jan 1990 for $111,000. This steadily depreciated, reaching a minimum value of about $85,000 in about 1996. In late 1995 or early 1996 we received a letter from the tax colletor saying that they had reappraised our condo at $85,000; we didn’t have to appeal at all. I’m not saying this will happen to you but there is precedent.
Over the years (the condo is probably worth $320,000 today) the appraised value was increased and today is appraised at what amounts to 2% annually from 1990. In other words, the decrease in appraised value was “recaptured” and I believe there was a lawsuit in Orange County regarding this a few years ago.March 28, 2006 at 10:30 AM #23833powaysellerParticipant
How was the appraised value increased? Did the Assessor determine a new value, or did they just increase it automatically by 2% each year?March 28, 2006 at 10:41 AM #23834John FParticipant
The property was reappraised yearly at about market value until the 2% prop 13 limit was reached in either 1999 or 2000.March 28, 2006 at 10:50 AM #23835nhamlinParticipant
Revenues probably won’t drop as much as you think. Remember the State of California is the big pig at the trough when it comes to property tax collections. The city and county get a fairly small portion.
Secondly, Only people who purchased in the last few years will benefit from a reduction. Many of those will not bother to file.
Finally there will be some offset caused by people selling property that was purhased more than five years ago. Even with a drop in values, the large number of properties with very low tax assessments will offset any drops that occur due to re-appraisal requests.
[email protected]March 28, 2006 at 11:07 AM #23836
This makes sense. Thanks for the reply.March 29, 2006 at 6:24 AM #23841
How did they come to the $85,000 number without the property selling? Did they look at comps or apply some formula?
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